Scalper1 News
All bets are off this election season Last week, the long and rancorous 2016 GOP presidential primary season came to an abrupt end as two of the three remaining candidates dropped out of the race. In a development that has astounded political pundits, Donald Trump is now the presumptive Republican nominee for President of the United States. Ironically, Hillary Clinton – who has long been viewed as the likely Democratic nominee – is still ensconced in primary season, slugging it out with her resilient challenger, Bernie Sanders. It remains to be seen whether Clinton can win key states such as California and finally capture the nomination. And every day that she must fight within her party weakens her, as she is being criticized from both the left and the right, which negatively impacts her ability to win in the general election. It seems that nothing thus far in this race has been going according to plan. Early on, pundits had predicted Donald Trump had no chance of winning the nomination, dismissing his bid as quixotic; similarly, they minimized the potential appeal that a candidate such as Bernie Sanders could engender and predicted an easy primary season for Hillary Clinton. Both assumptions have obviously been proven wrong. And although all Republican candidates for president signed an agreement that they would support the nominee, some are now reneging on the pledge. For his part, Trump has warned that his supporters may riot at the Republican National Convention this July if he does not get the nomination, although that now seems moot given all challengers for the nomination have fallen away. Meanwhile, candidate Sanders has suggested he will remain a candidate through the end of primary season and force a contested convention. What’s more, some prominent Republicans are already announcing they will not support Trump as their nominee in his bid for president. When House Speaker Paul Ryan announced last week that he is “just not ready” to endorse Trump, former vice presidential candidate Sarah Palin said she would campaign to unseat Ryan in the primary. And there are questions about whether, if Clinton is able to secure the Democratic nomination, Sanders supporters would stay home rather than vote for her in the general election. All bets seem to be off this election season, with some conservative Republicans even calling for a third-party candidate. Politics outside the proverbial box Adding to the disorder is that candidate Trump has a controversial platform that is not traditionally Republican in some important regards. For example, Trump’s suggestion last week that the US could renegotiate bond obligations to pay less than face value on US Treasuries to its debt holders, as Greece has done, could roil capital markets. In addition, Trump’s protectionist stance is of concern to many businesspeople because they fear a curtailment of free trade. Another area of concern is the US income tax code. Earlier this week, Donald Trump said he was open to raising taxes on the wealthiest Americans, a reversal of his original platform of decreasing taxes for those in all income tax brackets. This new position flies in the face of a key tenet of the Republican Party for two decades – and makes it more difficult to differentiate him from Democratic candidates. Perhaps even more controversial than Trump’s stance on certain issues is that of candidate Sanders, whose platform includes a protectionist approach to trade and a dramatic increase in income taxes on higher-income Americans. It seems that the candidates with the most fervent supporters are the ones whose platforms exist outside the proverbial box of their respective parties, which makes sense given American’s growing distrust of the “establishment.” Stock market uncertainty Pundits, of course, are saying that 1) Trump’s campaign platform will become more moderate now that he has to appeal to the general populace; and 2) it doesn’t matter anyway because he has a snowball’s chance in hell of winning the election in November. While the former may be true, any material changes in platform create uncertainty and ultimately reduce credibility – which is not typically met with approval by the stock market. But more importantly, the pundits have been terribly wrong about the candidacy of Donald Trump since the start, which suggests they could continue to be terribly wrong. After all, some of Donald Trump’s positions – such as maintaining Social Security at its current level – are likely to be more appealing to the general populace than to fiscally conservative Republicans. In other words, Trump may prove more popular in the general election than many expect – perhaps more popular than he has been in Republican primaries. Some even go so far as to argue that there is a significant cohort of dissatisfied voters that could support either Trump or Sanders. What’s more, if Clinton were to become the Democratic nominee, she may have difficulty winning over many Republican voters reluctant to support Trump, particularly given that she continues to be tugged to the left by the powerful primary challenge from Sanders. A pivot to the center, if and when she has secured the nomination, could similarly suffer from a lack of credibility, causing voters to wonder what they will actually get come January. Volatility up ahead This commentary is not intended to be an endorsement or indictment of any of the presidential candidates. What we’re concerned with is the stock market’s reaction to this year’s ongoing election developments. For example, a surge in the polls for Hillary Clinton could result in a sell-off of the healthcare sector on the assumption, rightly or wrongly, that her administration would have a negative impact on the health care industry. It’s no surprise, then, that some financial advisors I talk with are becoming increasingly worried about the presidential election and the potential for a substantial sell-off. In this “all bets are off” election, investors need to be prepared to be surprised – which means to be prepared for more volatility. Given not just this election but a potential Brexit, growing discontent in Europe and ongoing problems in the Middle East, it seems political developments around the globe could be the biggest source of volatility for investors this year. In this environment, investors will be well served by being tactical asset and sector allocators – and by focusing on downside protection in their respective portfolios. Scalper1 News
Scalper1 News